As a rental estate agent, you're no stranger to the challenges of managing properties. But in today's tough economic climate, the pressure on tenants is reaching a breaking point. Soaring living costs, sluggish salary increases, and job losses are making it increasingly difficult for renters to pay up come the end of the month.
It's no surprise, then, that tenant defaults are on the rise. According to the latest PayProp Rental Index, the rate of tenants in arrears reached 18.1% in Q2 2024, a significant increase from the previous year.
In light of this, Prop Data polled rental property practitioners to find out how they're managing as tenants struggle to keep up with payments. The results found:
19.1% said there was a major impact
23.4% said there was a substantial impact
29.8% said there was a moderate impact
10.6% said there was a slight impact
17% said there was no impact
The impact of tenant defaults on rental estate agents is significant. Over 40% of agents surveyed rated the impact as "substantial to major", highlighting the strain it places on their businesses. Despite the strong demand for rental properties and a steady stream of tenants, there remains a risk that these tenants may battle to keep up with their payments, leading to financial losses and operational challenges.
According to Nicky Ross, Rental Manager at Harcourts Rentalsdotcom West, her business has thankfully escaped the impact. “Our experience was that a lot of the times the factors that played a role were unplanned financial implications like employers not paying salaries on time, illness/death of a family member, or just the normal pressure of the current economy.
“We had our normal rule-breaking tenants that did not pay on time but we have a process in place whereby we start sending these tenants daily reminders once our invoices are dispatched, which helped,” she adds.
After this, Ross said they “followed strict procedure according to the lease agreement which is compiled in terms of the Rental Housing Act, 50 of 1999. The landlord was kept informed throughout the entire process.”
Eviction headache
Having a handle on the situation can prevent a difficult and drawn-out situation. This year, a high-profile case made headlines where a Durban businessman hadn’t paid rent for his R12 million Umhlanga apartment for two years, with the eviction proceedings still ongoing. The tenant has chosen to appeal the ruling after a two-year legal battle with the landlord, who has spent roughly R700,000 trying to evict him.
For rental professionals, the goal should be to reduce the risk of tenant defaults in the first place. Ross says their strategy is to get most (if not all) of their landlords to sign up with Xpello. “The solution offers South African property owners an efficient, legal, and cost-effective solution to deal with illegal tenants,” she says. “Once a tenant defaults on payment, Xpello are then notified immediately and they step in to start the eviction process. This motivates our tenants to agree to a payment plan to get their arrears paid in full and as soon as possible.”
Dealing with arrears
Ross encourages rental agents to take a proactive approach and flag tenant/s who continuously pay late. “At Harcourts Rentalsdotcom West, we send daily reminders through email and WhatsApp, once our invoices are issued, that the rental payment due date is coming up soon. We’ve found WhatsApp currently the most efficient and quickest way to communicate.
“If we get first-time offenders, we pick up the phone and give them a courtesy call asking if everything is okay as we have not received payment as yet. Most of the time we then receive payment immediately,” she says.
When payment has not been received by the first of the month, the situation becomes more serious and Ross adopts a harder stance. “We have a strict process we follow. The letter of demand (LOD) goes out no later than the third of the month and Xpello is copied in on this email. At the same time, we advise our landlord that a LOD was dispatched to the tenant/s as payment has not been received. We then follow up with the defaulted tenant/s once a week until payment has been received. Most of the time we do get our tenant/s to pay throughout this process. Once again, we provide our landlord with weekly feedback after we have followed up with the tenant/s.”
Communication is key when it comes to overcoming arrears. In recent years, rental management software has seen great interest from practitioners looking to simplify their rental book. reOs, for example, is known for its 'nudge' feature that allows rental agents to follow up late payments professionally with a single click.
Market uptick
Despite struggles with arrears, there are ‘green shoots’ starting to show for the property market. The repo rate was recently cut by 25 basis points to 8% and this should spur activity in the market. The drop in petrol price is sure to also put more disposable income in the pockets of consumers. The turnaround in Eskom’s electricity supply performance and the coalition government has also boosted consumer and business sentiment.
The rental market, in particular, is seeing demand continue to grow unabated and landlords will be ecstatic that the average cost of national rent in South Africa has increased, even beating inflation. “There are massive positive signs in the property market,” says Ross. “My advice to rental practitioners is to focus on what you can control and don’t lose sleep over things you can’t control. Everything always works out the way they are supposed to in the end.”